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Word of mouth is a great way to reach new customers, but it’s an even better way to lose them. At least, that’s what three researchers found when they looked at how the usage patterns of a home video service changed with quality levels.

“We wanted to say something about how people react to variability in product and service performance,” explains Puneet Manchanda, associate professor of marketing at the University of Michigan’s Ross School of Business. When it comes to services, marketers tend to rely on survey data to provide insights on customer satisfaction and the quality of offerings. In this study, Manchanda and his coauthors, Sungjoon Nam and Pradeep K. Chintagunta, doctoral student and Robert Law Professor of Marketing, respectively, at the University of Chicago’s Graduate School of Business, were able to access a more tangible measure of service quality.

Specifically, they studied a video-on-demand service, which they call DirectMovie to keep the provider’s identity anonymous, that transmits its movies to living rooms via terrestrial signal (think rabbit ears). Consumers who adopted DirectMovie didn’t have to play with tinfoil antennae to watch their choice of 100 movies: The movies were transmitted in the background and stored locally on set-top boxes. Playback was always crystal clear regardless of broadcast reception.

However, the quality of the broadcast signal did affect how frequently the selection of movies turned over. Every household was to receive 10 new movies each week — as long as reception was good. But the spottier the signal, the fewer new movie options would be available. The researchers could directly monitor the quality of the signal received by each household — in essence, the quality of DirectMovie’s service — and could see its effects on household adoption, how many movies households watched and termination rates. Not surprisingly, as the 2007 working paper “The Effects of Service Quality and Word of Mouth On Customer Acquisition, Retention and Usage” explains, those with better signals were more likely to watch more movies (each for a small fee) and more likely to remain with DirectMovie longer, which confirms the link between signal/ service quality and customer satisfaction. The study covered over 3,000 households across three U.S. markets — Salt Lake City, Jacksonville and Spokane — between October 2003 and November 2004.

Apparently, service quality also affected how customers described DirectMovie to friends and family.